CNO Financial Group Inc.
) announced the completion of various financial transactions that
were a part of a recapitalization plan commenced in the beginning
of September. Additionally, the company publicized the buyback of
approximately 4.8 million shares at an average price of $8.62 per
share in the third quarter of 2012.
CNO Financial spent $41.4 million in aggregate for the buybacks
in the third quarter, thus bringing its expenditure on share
repurchase for the first nine months of 2012 to $99.5 million. The
company repurchased 12.89 million shares at an average price of
$7.72 in the first three quarters of 2012. This corresponds to 5.3%
of the outstanding shares at the end of the 2011. Total amount
spent on share buybacks in 2012 is expected to be around $150-$170
Coming back to the recapitalization plan, CNO Financial has
entered into a new senior secured credit agreement and completed a
private offering of new 6.375% senior secured notes due October
2020, worth $275 million. Further, the company has obtained a
three-year unfunded revolving credit facility worth $50 million to
meet its general corporate needs, per the plan.
The senior secured credit agreement comprises a $250 million
four-year term loan facility and a $425 million six-year term loan
facility. The amounts raised under the six-year term loan facility
and senior secured notes offering were recently increased to $425
million and $275 million, respectively, from $400 million and $250
million announced initially. This increase was driven by the
favorable response from lenders, which also helped CNO Financial
achieve better pricing and other terms of borrowing, leading to
reduced weighted average cost of capital.
Upon completion of the borrowings, CNO Financial used the net
proceeds from the senior secured notes and new credit agreement for
the repayment of the $224 million loans outstanding under the old
senior secured credit agreement and redemption of $275 million
worth of 9% senior secured notes due 2018 at a premium value of
$323 million. Further, the proceeds were used for buying back the
outstanding 7% convertible senior debentures due 2016, worth $200
million, from certain associates of Paulson & Co. Inc. at a
premium price of $355 million.
The amount raised was also used to shell out fees and expenses
associated with the recapitalization. CNO Financial is retaining
the residual proceeds as excess holding company funds to be used
for general corporate expenses.
However, as a result of the costs related to the buyback of $200
million 7% convertible senior debentures, redemption premium paid
on the 9% senior secured notes and the write-off of unamortized
discount and issuance costs, the company projects a one-time charge
of $180 million, to be recorded in the third quarter of 2012.
Additionally, the cost of extinguishing the beneficial conversion
feature associated with the repurchased 7% convertible senior
debentures is estimated to shrink shareholders' equity by $24
Despite these costs, the recapitalization is expected to be
beneficial for CNO Financial. It has boosted the company's
financial flexibility and improved its debt maturity profile. The
cost of debt has also reduced by about 210 basis points (bps),
thereby bringing down the cost of capital.
Moreover, the debt-to-total capital ratio, excluding accumulated
other comprehensive income, has increased 520 bps from 16.6% as of
June 30, 2012. The plan is also expected to enhance the growth rate
of the company's earnings per share and return on equity. The
success of the recapitalization plan also lies in the fact that it
has neither affected the company's strong credit ratings nor acted
as an impediment in its share repurchase plans.
CNO Financial, which competes with
), currently carries a short-term Zacks #2 Rank (Buy). We maintain
our long-term 'Outperform' recommendation on the stock.
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